Password protection generally prevents access until the correct phrase or word is provided, so you can't read the material, whereas, Redshirt is a type of encryption which means you can read the material but it wont make sense.

Uplink help: Check out the Guide or FAQ.
Latest Uplink patch is v1.55.

redshirting (as a process) works basically the same but the password is inside the redshirt program , so you only need to program to redshirt/unredshirt any files, without providing it with a password. think of it like winzip, it just converts the files into something else, and you just need winzip to unzip the again; just to put it in easy language...